Cecily Zamora
The process of making tax laws permanent in the United States involves several steps and requires the consent of both houses of Congress and the President. The Tax Cuts and Jobs Act (TCJA) of 2017, which made significant changes to the tax code, is set to expire at the end of 2025, with some provisions already being phased out. While there are discussions about extending the TCJA or specific provisions, it is uncertain if and how the law will be made permanent. Republicans generally favor an extension, while Democrats, now in control of Congress and the presidency, may seek significant changes to individual income, corporate, gift, and estate tax laws. The specific steps and strategies to make tax laws permanent depend on the political landscape and the priorities of the administration in power.
| Characteristics | Values |
|---|---|
| Process of passing a tax bill into law | A tax bill must be passed by both houses of Congress (the Senate and the House of Representatives) and approved by the President. |
| Temporary nature of tax laws | Tax laws can be temporary to keep costs down and comply with the Byrd Rule, which prohibits reconciliation bills from raising the federal deficit beyond a 10-year budget window or making changes to Social Security. |
| Extending temporary tax laws | Temporary tax laws can be extended by Congress, with or without the President's approval. |
| Tax law changes | Changes to tax laws can be influenced by citizens through contacting members of Congress and elected officials, attending meetings, participating in lobbying efforts, and circulating petitions. |
| Impact of political landscape | The political landscape can significantly impact tax laws, with different administrations proposing and implementing various tax policies and strategies. |
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What You'll Learn
The role of the President and Congress in passing tax laws
The process of passing a tax law in the United States involves both the President and Congress. The President plays a significant role in proposing and influencing tax laws. During his presidential campaign, Joe Biden, for example, proposed significant changes to income taxes, capital gains taxes, payroll taxes, and estate tax laws. These proposals are typically based on recommendations from the Treasury Department, the IRS, or individuals in business or professional fields. The Treasury Department is often responsible for drafting the proposed legislation.
Once the President's recommendations are made, they are sent to Congress for review and potential approval. The Constitution states that all tax legislation must "originate" in the House of Representatives, specifically in the House Committee on Ways and Means. This committee holds hearings to understand the potential impact of the proposed legislation on the economy and specific interest groups. After the hearings, the committee revises the proposal and turns it into a draft bill.
The draft legislation is then introduced to the full House of Representatives for consideration. If passed by the House, the bill moves on to the Senate. At this stage, the Senate can choose to pass the House version of the bill or amend it. If the Senate passes the House version without amendments, the bill goes directly to the President for signature. However, if the Senate makes amendments, the bill is sent back to the House of Representatives for review.
In some cases, Congress may use the budget reconciliation process to pass tax legislation. This process allows for a fast-track consideration of bills that bring spending and revenue in line with the budget resolution. Debate on reconciliation bills is limited to 20 hours, and they can be passed in the Senate by a simple majority vote. The Tax Cuts and Jobs Act (TCJA) of 2017, for instance, was passed through this reconciliation process.
If Congress passes a tax bill, it is sent to the President for approval. The President has the option to sign the bill into law or veto it. If the President vetoes the bill, it is returned to Congress, along with a statement outlining the reasons for the veto. Congress can then make the requested changes or override the veto with a two-thirds vote in both the House and the Senate, at which point the bill becomes law without the President's signature.
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The impact of political landscape changes on tax laws
The political landscape has a significant impact on tax laws, with shifts in political alliances and ideologies driving changes in tax policies. Political shifts can introduce uncertainties and complexities for tax professionals and individuals alike, necessitating swift adaptation to maintain compliance.
One notable example is the Tax Cuts and Jobs Act (TCJA) in the United States, enacted in 2017 by a Republican-led Senate. While the TCJA brought sweeping reforms and simplifications to the tax code, lowering rates for many Americans, several provisions were temporary and set to expire at the end of 2025. These temporary measures include changes to standard deductions, individual tax rates, and the child tax credit. The upcoming expiration of these provisions adds complexity, and the political shifts from the 2024 US election could further influence tax policies.
Following the 2024 election, a Republican administration led by Donald Trump is expected to introduce changes to the tax landscape. They have proposed solidifying the temporary measures of the TCJA by making them permanent, ensuring the continuation of reduced individual and corporate tax rates. Additionally, they plan to implement a substantial reduction in the corporate tax rate for manufacturing companies within the US.
Political ideologies also play a role in shaping tax policies. Research on OECD countries from 1990 to 2015 indicates that left-leaning governments are less likely to increase VAT rates and more likely to increase the top PIT rate than right-leaning governments. Banking crises are found to influence tax rates, and changes in one country can impact the likelihood of another country changing its tax rates.
In the context of global tax compliance, the evolving political landscape brings uncertainty. Countries are implementing various versions of the EU's BEPS 2.0 and Pillar Two rules, as well as the Global Minimum Tax. The incoming US administration is expected to introduce new international tax legislation, which will impact multi-year tax planning for corporations.
To navigate these dynamic environments, tax professionals must stay informed and adopt proactive strategies. Embracing technology and digital transformation is crucial for compliance in an increasingly digital global tax landscape. Tax departments need to invest in the right technology strategies and training to adapt to new ways of working.
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How citizens can influence tax laws
Tax laws are an essential aspect of any government's fiscal policy, and citizens can play a role in influencing these laws through various means. Here are some ways in which citizens can have a say in tax legislation:
Understanding the Process
Citizens can educate themselves about the formal tax legislation process. In the United States, for example, a proposed tax rule or change must go through specific steps as defined by the Constitution. Understanding these steps enables citizens to know when and how to engage with policymakers.
Voting and Political Engagement
Voting is one of the most fundamental ways citizens can influence tax laws. By electing representatives who align with their tax-related interests and values, citizens can shape the broader fiscal policy agenda. Staying engaged between elections by contacting representatives and participating in town hall meetings or public forums can also ensure that citizen concerns are heard.
Advocacy and Lobbying
Citizens can band together to form advocacy groups or join existing ones to amplify their voices. These groups can lobby legislators and decision-makers, highlighting the potential impacts of tax laws on specific communities or industries. Advocacy groups can also propose alternative tax policies that better serve the interests of their constituents.
Public Protests and Petitions
Protests and petitions are another avenue for citizens to express their views on tax laws. By peacefully assembling and demonstrating, citizens can draw attention to the potential consequences of specific tax policies. Petitions allow citizens to formally present their concerns or suggestions to those in power, often gaining media attention and sparking broader discussions.
Media and Social Media Campaigns
Leveraging traditional and social media platforms, citizens can initiate campaigns to raise awareness about tax law implications. Through op-eds, social media posts, and online videos, citizens can educate their fellow citizens and generate pressure for change. Social media campaigns can also be used to organize and coordinate efforts, such as petitions or protests.
Direct Engagement with Policymakers
Citizens can also engage directly with policymakers, such as attending town hall meetings or public hearings. During these events, citizens can ask questions, express their concerns, and offer suggestions for alternative tax policies. Additionally, citizens can write letters or emails to their representatives, providing feedback and input on proposed tax laws.
While citizens may not always see the immediate results of their efforts, consistent and collective action can shape the direction of tax laws over time. An informed and engaged citizenry is crucial to ensuring that tax policies reflect the needs and interests of the people they impact.
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The process of formal tax legislation
Formal tax legislation is the process by which a proposed tax rule or tax change may become law in the United States. The legislation, like all federal laws, requires the consent of both houses of Congress – the Senate and the House of Representatives – and presidential approval.
The proposed tax laws start the formal tax legislation process as a bill before it is to become law. The tax bill must be introduced in the House of Representatives because the House is supposed to represent individual citizens, rather than whole states, as with the Senate. The formal tax legislation process follows these specific steps: The tax bill originates in the House of Representatives and is referred to the Ways and Means Committee.
Once committee members reach an agreement regarding the legislation, the proposed tax law is written. The tax bill goes to the full House for debate, amendment, and approval. The tax bill is passed to the Senate where it is reviewed. The Finance Committee may rewrite the proposal before it is presented to the full Senate. Following Senate approval, the tax bill is sent to a joint committee of House and Senate members who work to create a compromise version.
The compromise version is sent to the House and Senate for approval. Once Congress passes the bill, it is sent to the president who will either sign it into law or veto the bill. If the President signs the bill, the responsible agencies, such as the Treasury Department and Internal Revenue Service (IRS), must take action to carry out the bill. If the President decides to veto the bill, they return it to the House along with a statement of why they oppose various portions of the bill.
Citizens can influence tax laws through the informal tax legislation process, which includes contacting members of Congress and elected officials, attending town or county meetings, participating in lobbying efforts, circulating and signing petitions, and by voting for particular candidates.
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The use of budget reconciliation to pass tax laws
The Congressional Budget Act of 1974 created a special legislative process called "budget reconciliation," which Congress can use to quickly advance high-priority fiscal legislation. Budget reconciliation is a fast-track process for enacting certain tax, spending, and debt limit legislation. It allows for expedited consideration of such legislation, bypassing the filibuster in the Senate, which would otherwise require 60 votes to avoid.
Reconciliation directives instruct specified House and Senate committees to prepare and report legislation by a certain date to increase or decrease spending or revenues by specified amounts over a specified time. The budget may also include reconciliation instructions, which direct one or more committees to recommend changes to existing law to achieve specified changes in spending, revenues, or deficit. The Senate debate time on a reconciliation bill is limited to 20 hours, and it can be passed with a simple majority vote (51 votes), in contrast to most legislation, which requires a 60-vote supermajority.
In 2017, Republicans used budget reconciliation to pass the Tax Cuts and Jobs Act (TCJA), which included significant changes to the tax code, such as cutting the corporate tax rate from 35% to 21% and doubling the standard deduction. Many of these changes were temporary and are set to expire at the end of 2025. In 2025, Republicans are aiming to once again use the reconciliation process to extend the TCJA and pass new tax cuts.
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Frequently asked questions
For a tax law to become permanent in the US, it must be passed by both houses of Congress and approved by the President. Citizens can influence tax laws by contacting members of Congress and elected officials, attending town or county meetings, participating in lobbying efforts, and circulating petitions.
The TCJA of 2017 included significant changes to the tax code, such as increasing the standard deduction and child tax credit. Most of the provisions affecting corporations do not sunset, but many of those impacting individuals and estates are temporary and set to expire at the end of 2025. To become permanent, the TCJA would need to be extended through the budget reconciliation process, which requires a simple majority in the Senate.
There are several possibilities. If Republicans control Congress after the 2024 election, they may use reconciliation to extend the TCJA. If Congress is divided, lawmakers could pass a bipartisan agreement addressing expiring provisions permanently. Alternatively, they may temporarily extend the TCJA to allow more time for negotiations.
Political changes, such as the Democratic control of Congress and the presidency, can influence the likelihood of significant tax law changes. For example, President Biden has proposed an overhaul of income taxes, capital gains taxes, and estate and gift tax laws. These proposals may be submitted to Congress for review and passed through budget reconciliation.
